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Toward a Risk-Free Economy

If the real economy — which produces goods and services — could be disconnected from financial markets, the Great Depression (and thus the New Deal) and the Great Recession (and thus TARP and “stimulus”) would not be part of history. The problem is that financial markets are a necessary part of the real economy — unless your idea of an economy is one that functions without money, banking (as we know it), credit, and risk-pooling (e.g., insurance companies and corporations).

Money is the root of all financial crises because it eases the buying and selling of goods and services. That sounds good, but money also enables its holders to more readily change their minds about what and when they buy and sell. When Farmer Joe trades wheat to Farmer Jake in exchange for butter, he does so, in part, because wheat isn’t nearly as portable as money. If Farmer Joe gets money for his wheat, there’s no telling what he’ll do with the money from one day to the next. He might even decide to save some of it, thus depriving Farmer Jake of sales that he was counting on and triggering a Keynsian rollback in aggregate demand.

Banks would be okay, as long as they are warehouses for goods and are not in the business of holding money and lending it out. Instead of paying interest, banks would charge customers for storage services.

Why shouldn’t banks lend money? Because lending by banks is a form of credit, and credit is to be eschewed. If money is the root of all financial crises, credit is the thing that allows money to do its dirty work. When borrowers don’t repay their loans, banks (and other lenders) go belly-up, which just triggers another kind of Keynsian rollback in aggregate demand. Government actions to make lenders whole simply transfer the risk of lending from particular depositors and investors to taxpayers at large, whose natural reaction is to spend less now because they can see higher taxes in their future.

Risk-pooling goes hand-in-hand with credit. People who pool their money to underwrite risky propositions (e.g., business ventures) do so knowing that not all propositions will succeed. Obviously, the thing to do is to back only those propositions that are ensured of success, but there’s no way to do that. Solution: Don’t allow risk pooling because it’s too, well, risky.

So there you have it, a prescription for a risk-free economy: no money, no credit, no banking, no risk-pooling. Just plod down the road to Farmer Jake’s place and trade some of your wheat for some of his butter. And don’t worry about the fact that you live in a thatched hut with a dirt floor, drive a rickety cart which is pulled by a rickety donkey, dig potatoes out of the ground, and eat those potatoes (with a little butter) by the dim light of a few home-made candles.

Wait a minute! There’s still the risk of bad weather, which could stunt or ruin your wheat crop. I guess there’s no such thing as a risk-free economy, is there? But don’t tell that to the regulators, you’ll spoil their fun.

On Liberty

What is liberty? It is peaceful, willing coexistence and its concomitant: beneficially cooperative behavior.

John Stuart Mill opined that "the only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others." But who determines whether an act is harmful or harmless? Acts deemed harmless by an individual are not harmless if they subvert the societal bonds of trust and self-restraint upon which liberty itself depends.

Which is not to say that all social regimes are regimes of liberty. Liberty requires voice -- the freedom to dissent -- and exit -- the freedom to choose one's neighbors and associates. Voice and exit depend, in turn, on the rule of law under a minimal state.

Liberty, because it is a social phenomenon and not an innate condition of humanity, must be won and preserved by an unflinching defense of a polity that fosters liberty through its norms, and the swift and certain administration of justice within that polity.

The governments of the United States and most States have long since ceased to foster liberty, but Americans are hostage in their own land and have no choice but to strive for the restoration of liberty, or something closer to it.

Notes about Usage

"State" (with a capital "S") refers to one of the United States, and "States" refers to two or more of them. "State" and "States," thus used, are proper nouns because they refer to a unique entity or entities: one or more of the United States, the union of which, under the terms and conditions stated in the Constitution, is the raison d’être for the nation. I reserve the uncapitalized word "state" for a government, or hierarchy of them, which exerts a monopoly of force within its boundaries.

The words "liberal," "progressive," and their variants are in quotation marks because they refer to persons and movements whose statist policies are, in fact, destructive of liberty and progress.

Marriage, in the Western tradition, predates the state and legitimates the union of one man and one woman. As such, it is an institution that is vital to civil society and therefore to the enjoyment of liberty. The recognition of a more-or-less permanent homosexual pairing as a kind of marriage is both ill-advised and illegitimate. Such an arrangement is therefore a "marriage" (in quotation marks) or, more accurately, a homosexual cohabitation contract (HCC).

Comments & Correspondence

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